Competitive Bidding: Why You Should Sell Your Value Instead
“If I do a job in 30 minutes, it’s because I spent ten years learning how to do that in 30 minutes. You owe me for the years, not the minutes.”
Think of the last time you went to the dentist to get a tooth fixed, and the receptionist handed you the bill. You probably muttered under your breath that it seemed like a lot of money for something that took less than 30 minutes.
Now, while I'm sure your dentist could stretch that 30-minute filling into two or three hours to make you feel better about how much you're spending on it (although sitting in that chair any longer than you absolutely need to isn't worth it), stop for a second and consider what you're paying for.
Salary is Commensurate with Experience
The first thing you need to ask yourself is: "Are you paying for the dentist's work that morning or the experience they have to fix your tooth properly?
Your dentist didn't wake up one morning knowing how to do a specific job like a root canal and charge you accordingly for it. They spent a minimum of eight years in school training to be able to fix your tooth today.
In fact, they've completed:
Four years for an undergraduate degree
Four years of dental school,
Two or three additional years if your dentist specializes in a field like periodontics or endodontics
Not to mention the years of residency and practice they've accumulated along the way. So, in other words, you're not paying your dentist a specific unit priced based on the hour (or minutes) it took for them to do their work. You're paying for the years of experience and qualifications to do the job right.
I'll give you another example. Have you ever read a job listing that says, "Salary is commensurate with experience?" It's another way of saying, "The salary isn't a fixed price. The more experience you have, the more we will pay you because the knowledge and experience you bring to a job are valuable."
Residential Contractors Should Charge for Their Experience
The dentist who charges based on their years of education and expertise is no different than the general contractor who charges clients based on their years of hard work, sweat, and experience in the construction industry.
After all, you've spent years working on construction projects learning how to remodel and build homes well. Shouldn't your clients pay for that job site experience?
Yet, every time you submit an estimate to a client, all you hear back is:
"The last guy's quote was cheaper."
"I'm sorry, but you're just too expensive."
"Can we add a few things and include them in the original price?"
"Why don't you give free estimates?
But why should the work you do be valued any differently than the work a dentist does?
The HGTV Effect
Mainstream media, namely HGTV and other home renovation channels, has dramatically distorted the general public's view of the value professional builders, trades, and contractors bring to a project.
In this world of "24-hour reality TV," fast edits, flashy hosts, and Hollywood "reveals" mask the real hard work done on a remodeling project and the true heroes that get the job done based on years of experience, not fancy camera work.
This makes it harder for construction business owners to shift clients' mindsets away from the "Hollywood renovation" and back to reality - especially when discussing the timelines and total costs for remodeling projects.
How to Sell Your Company's Value
Clients are conditioned to see contractors as commodities. It's your job to change that perception and show them the value and expertise you bring to a residential construction project as a valued partner, not just an hourly rate handyman.
One of the best ways to achieve that is to start off with a strong sales process.
A strong upfront sales process is your best tool for getting potential customers to understand how you operate and why they should want to work with you.
This is what we mean when we say, "sell your value."
It should convince clients that paying for a residential construction company that draws on years of experience to properly investigate and detail what their construction project should cost means a better outcome vs. the contractor who threw out a ballpark guess of the job costs.
Your sales process should also outline and help identify the potential pitfalls of shopping based on price instead of solving the real problem when it comes to estimating: Scope of Work.
Material costs and labor rates are direct costs that don't decrease just because the client wants to pay less. The only way another builder can come in cheaper is by undercutting their markup percentage, period.
And construction companies who aren't making enough money on a job to cover their overhead costs are simply diluting their net profit margin and won't be around to finish the project or 1-2 years later when the client needs service work.
Four Best Practices to Ensure You're Charging Based on Your Experience
Charge for your estimates
Let's go back to our dentist example. Before they fix your tooth, they need to examine it, take x-rays and determine a course of treatment, which they provide you in an estimate. That estimate isn't free. You've paid for it through examination fees and x-ray charges.
Charging for your remodeling estimates ensures you're paid for all the time to prepare an accurate, detailed accounting of what the project will cost and how long it will take. This is how we solve the SOW problem: by allowing us to go step-by-step through the project development process and determine actual costs instead of plopping a bunch of unrealistic allowances into your budget.
Pre-qualify clients
Your time is valuable, and you don't want to waste it meeting a client who is just price-shopping. So before racing out in traffic to meet every window shopper, you must consider the following.
Ensure that your website clearly and effectively identifies your process and can pre-educate potential clients before you get on the phone with them.
If they pass that "grunt" test, an initial phone conversation helps you determine if the client is interested in building a relationship with a trusted remodeling partner, or if their main decision factor is based on price alone.
These two things are crucial to connecting your experience and value to your sales process. Without them, people will continue to treat you as a commodity.
Don't focus on winning the bid
If winning the bid is your only goal, you've already lost because you are now competing against yourself and diluting your gross profit. When you start the builder-client relationship by dropping your price to win the bid, you're setting a precedent for the client to expect that throughout the project.
Know your numbers and stick to them
Understand what you need to charge to do the job right and be profitable - and stick to it. The next time a prospective client says, "The last guy was cheaper," help them understand that you base the price of your construction services on:
➡️ The scope of work
➡️ The approach to the work
➡️ The costs involved in operating your business (aka your Overhead Expenses and a reasonable profit)
This helps them see that materials and labor costs aren't going to be cheaper just because they want to pay less. And that the cheaper guy is likely cutting his markup to win the bid, which increases the chances of his funding running out mid-project, and corners being cut on their remodel. Or worse, hitting the client up with multiple change orders once the project starts.
Take the Right Jobs at the Right Price
Running a profitable residential construction business means taking the right construction jobs at the right price. That means charging the right amount for all your work - the small jobs and large projects, based on your years of knowledge, experience, and what your business needs to remain profitable.
If you allow prospects to negotiate with you for lower prices, you're changing the dynamic of your relationship with them. It's no longer client and builder - it now becomes employer and employee. Don't sell yourself and your company short because your years of experience are worth your price.
I created the BUILD AND PROFIT SYSTEM to help residential contractors and remodelers run profitable businesses by implementing rock-solid systems that help ensure they understand their financials, control their time, and get paid for all their work.
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